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Commissioner of Income-tax, Delhi-i Vs. Punjab Electric Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax Reference No. 30 of 1971
Reported in[1981]132ITR276(Delhi)
AppellantCommissioner of Income-tax, Delhi-i
RespondentPunjab Electric Ltd.
Excerpt:
- - the view taken by the tribunal is clearly untenable. we are, thereforee, clearly of opinion that the tribunal was in error in directing that only proportionate interest in respect of the 151 shares in the assessed-company not held by the debtor company could be brought to tax in the hands of the present assessed. the arguments addressed by the learned counsel are, to doubts, interesting but we are afraid that they travel far beyond the scope of the reference in the present case......a sum of rs. 1,46,614 to all india finance and commerce ltd., (hereinafter referred to as the 'debtor company'). it is common ground that the amounts advanced were bearing interest at 12% per annum. for the assessment year 1961-62, the assessed-company included in its income-tax return interest in respect of outstanding due from the debtor company only in respect of a period of 6 months. i.e., a period up to august 31, 1960. no interest for the rest of the accounting year was take into consideration. it appears that in the course of the previous year the debtor company has acquired 4,799 shares out of the total of 4,950 shares in the assessed-company with the result that the assessed-company became a subsidiary of the debtor company w.e.f. that date.the ito was of opinion that the.....
Judgment:

RANGANATHAN J. - The following question has been referred to this court by the Income-tax Appellate Tribunal under s. 66(2) of the Indian I.T. Act, 19022 :

'Whether, on the facts and in the circumstances of the case, the entire interest of Rs. 6,000 was not assessable as income of the assessed company.'

The question arises out of the proceedings of assessment, for the assessment year 1961-62, of the Punjab Electric Ltd. The relevant previous year ended on December 31, 1960. The assessed has advanced a sum of Rs. 1,46,614 to All India Finance and Commerce Ltd., (hereinafter referred to as the 'debtor company'). It is common ground that the amounts advanced were bearing interest at 12% per annum. For the assessment year 1961-62, the assessed-company included in its income-tax return interest in respect of outstanding due from the debtor company only in respect of a period of 6 months. i.e., a period up to August 31, 1960. No interest for the rest of the accounting year was take into consideration. It appears that in the course of the previous year the debtor company has acquired 4,799 shares out of the total of 4,950 shares in the assessed-company with the result that the assessed-company became a subsidiary of the debtor company w.e.f. that date.

The ITO was of opinion that the entire interest on the outstanding up to December 31, 1960, was taxable as the income of the assessed and he thus added a sum of Rs. 6,000 referable also for the period September 1, 1960, to December 31, 1960. This was confirmed by the AAC. But on further appeal, the Tribunal held as follows :

'In our opinion, there is justifiable reason for making some addition as and for interest since the all India Finance and Commerce Ltd., has be come the parent company with the assessed as a subsidiary. Certainly the relationship of a debtor and creditor had ceased to exist to the extent to which the parent company held the shares in the assessed-company, but with reference to the balance of shares, the relationship of debtor and creditor subsisted. Hence in respect of the portion of the debt that could be attributed to the shares acquired by All India Finance and Commerce Ltd. If any interest is paid, it could be a case o payment of interest by the all India Finance and Commerce Ltd., to itself. But with reference to the proportionate amount which pertains to the balance of shares, the All India Finance and Commerce Ltd., was bound to pay interest. With reference to the question of agreement or no agreement to pay interest our finding is that there was implied contract to pay interest taking into account the conduct of parties prior or the assessed-company becoming a subsidiary of All India Finance and Commerce Ltd. In that view of the matter, in our opinion, interest was certainly payable on the proportionate value of the debt viz. {1,46,614 x 151} -4950

by the All India Fianc and Commerce Ltd., to the assessed. The income-tax Officer will calculate that proportionate interest and bring to tax only that amount instead or Rs. 6,000 in question.'

It is at the instance of the Commissions that the question already set out has been referred to this court for decision.

The view taken by the Tribunal is clearly untenable. Though the assessed might have become the subsidiary of the debtor company they are separate corporate entities. There is no legal warrant for the apportionment which the Tribunal has done, after coming to the conclusion that an addition was called for. The view that the relationship of debtor and creditor between the two companies would cease to exist to the extent to which the parent company held the share in the assessed-company is patently incorrect. We are, thereforee, clearly of opinion that the Tribunal was in error in directing that only proportionate interest in respect of the 151 shares in the assessed-company not held by the debtor company could be brought to tax in the hands of the present assessed.

Mr. P. N. Monga, learned counsel appearing for the assessed, did not seek to support the line of reasoning of the Tribunal. But taking advantage of the wide frame of the question referred to us, he sought to contend that the question should be answered in the negative and that no part of the interest of Rs. 6,000 would be at all assessable in the hands of the assessed-company. His contention is that though the assesseds has previously advanced loans on interest it has decided not to charge any interest w.e.f. August 31, 1960, because on that date the debtor company has practically become the owner of the shares in the assessed-company and no real purpose would be served by the assessed charging the debtor company the interest thereafter. He contended, thereforee, that w.e.f. August 31, 1960, a variation in the terms of agreement between the two companies should be inferred. Thereafter, no interest at all accrued to the assessed-company. Mr. P. N. Monga characterised income by way of interest subsequent to August 31, 1960, as a purely national income and he relied upon several decisions to support a contention that such notional income should not be assessed.

The arguments addressed by the learned counsel are, to doubts, interesting but we are afraid that they travel far beyond the scope of the reference in the present case. The Tribunal has decided the appeal before it on a very short ground. The conclusion of the Tribunal is that a portion of the assessable income is taxable. It means that the plea put for wars on behalf of the assessed that the agreement to pay interest had come to an end on August 31, 1960, and that there was no accrual of interest thereafter has been rejected. The assessed has not taken out any reference from the order of the Tribunal. But apart from this technicality the question whether the original agreement between the parties had undergone any modification is a question of fact. It is the case of the assessed that the two parties has agreed the subsequent to August 31, 1960, the advances should carry no interest, it is for the assessed to pleas such an agreement and to prove it. There is no corresponds between the parties and no resolution of the companies produced to support any such theory of modification of the original agreement. Mr. P. N. Monga wants us to infer all this from the mere fact that in the books of account no interest has been taken into consideration we also find ourselves unable to accept his contention that in the circumstance it should be held that no interest has at all accrued to the assessed after August 31, 1960.

For the reason above mentioned we answer the questions referred to us by saying that the entire interest of Rs. 6,000 was assessable as the income of the assessed-company. There will be no order as to costs.


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